SUNDAY, DECEMBER 11, 2011

OPINION & COMMENTARY

The Corporate Divide

CAMBRIDGE, Massachusetts

Acore problem for Western nationsis that many oftheir large companiesare booming even as those corporategood times are not reflected in societieswith high unemployment anddiminishing wages.

The interests ofmultinationals and the countries thatbirthed them have diverged.In effect, corporations have theflexibility to navigate a globalizedworld through the border-hopping

deployment of resources while leadersof individual countries are hobbledby frontiers.

The thing about awired world of 7billion people is thatnational policymaking increasingly -

looks like a failing exercise in tryingto catch up with and regulate forcesunleashed by their creativity.

The numbers are startling. American-based multinational corporations’added683,000workers in Chinaduring the 1999-2009 decade, a 172percent increase, and 392,000 workersin India, a 542 percent increase.

Across the world, these Americanmultinationals added 2.9 millionworkers in the same decade, including477,500in Latin America, whilecutting 864,600 workers in North America, accordingto figures from the United

States Department ofCommerce.

Many factors are at work here. TheAmerican companies are seekingto cut labour or costs, but they alsowant to be closer to a rapidly expandingmiddle class in developing economies

where the talk is ofboom timesrather thanoferoding hope.

They have derived significant taxbenefits through their global dispersion.And while cutting jobs at homein the 2008 recession, theyhave discovered .that technology enabled

them to do without a lot ofthose workers

permanently.

Add to all this the cheapest borrowingever (if you are able to qualify fora loan) and it's understandable thatAmerican corporations use that easymoney for capital investment rather

than for jobs. The figures from theCommerce Department indicate thatAmerican companies still allocate$2.40in capital spending in the UnitedStates for every dollar spent abroad.

As my colleague Floyd Norris hasreported, United States corporateprofits after taxes were estimatedto be $1.56trillion, at an annual rate,

during the third quarter of this year,or10.3percent ofthe size ofthe economy,up from 10.1percent in the secondquarter. Never until 2010was there aquarter in which the corporate sharewas as high as 9percent.

Even more startling, overall corporateProfit is 15 before taxes were up35 percent compared to the quarterjust prior to the recession of 2007-9,

whereas wage and salary incomewas up just-1.8percent.

The picture isclear enough: sharply improved corporateperformance no longer generates

any significant correspondingaddition to American jobs or wages.

Wage and salary income nowamounts to less than 43percent oftheUnited States economy; in the six decadesbefore the recession, that figure

was never below 45percent.

The picture is not much different inFrance where leading multinationalcorporations - at least those outsidethe financial sector - have been recordingrecord profits whileunemploymenthas risen to over 9percent.

In Britain, reports of huge bonusesfor top corporate management haveprovoked an understandable outcry,but they often (not always) reflectstrong company performance.

Allthese numbers translate as a serious,long-term problem for Westernsocieties. Remedies short of globalgovernance - and that's a couple ofcenturies off at least - are not easyto find. Clearly something more canbe done in the area of corporate taxcodes to ensure that companies arenot deriving massive fiscal advantage

on top of everything else by takingtheir operations overseas.

Beyond that, it's important to enlistcorporate leaders in national effortsto address employment and wage issues.

Attacking the rich and hurlinginsults at them may give momentarygratification, but itwon't resolve anything.

Germany has done better than any other Western nation in involvingcorporations and labour unions whenformulating industrial policies thathelp keep jobs at home.

In the end, it is in the interests ofmultinationals to be sensitive tothese questions. The Occupy movementdemonstrated how rage isgrowing across the West. It's worthnoting that before corporate profitsin America surged to over 10percentofthe economy recently, the previous

record annual share was 8.98percent

in 1929.

We all know what happenedright after that.